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Market Monitor, Wednesday, 10/25/2006

HAVING TROUBLE PRINTING?

Jim Brown : 10/25/2006 11:50:26 PM

Reader Challenge Repeat - This week's reader challenge is going to be a little different. It is nice to play pin the tail on the indexes as we have the last couple weeks but it does not help us make any money. This week we need to make some money to support our trading habit.

I am going to ask everyone to submit a play for next week. The person whose play makes the most money will win a copy of an Option Investor Seminar on video. This is the seminar package we sold for $1,995 several years ago. There are videos of numerous Option Investor traders including myself, Jeff Bailey, Austin Passamonte and about a dozen others. There is a huge workbook with all the power point slides from three days of presentations. While the charts will be old the option training is still 100% the same.

Here is how this will work:

I want you to submit a potential option play to me by email at jim@optioninvestor.com before the close on Thursday. I will organize them and then list them in the monitor on Friday. The starting price will be Friday's closing price. Monitor readers can follow along with any plays they choose. The play that gains the most on a percentage basis by next Friday's close (11/3) will be the winner.

You can't say "short the QQQQ" or "buy Google". You have to give a specific option like a "QQQQ $45 Call option QQQ-LS." You need also to give a two or three sentence reason why you are recommending the play. Nothing fancy but before readers blindly put on money on it they will want to know why. Equity options plays only, no futures.

I will list the plays on Friday 10/27 but without names. I don't want anybody to not play because they are afraid of being embarrassed if the play does not work. Been there, done that! I will disclose the names on the top 3 plays at the end of next week. I will also give number 2 and 3 a prize but I have not decided yet what it will be.

Put on those thinking caps and fire up your chart programs. Let's make some money next week!

Keene Little : 10/25/2006 11:45:41 PM

Wednesday's high was a good spot for the rally to have topped out. Proof will be Thursday obviously but I'll go out on a limb tonight and call a market top. I can see the possibility for a minor new high but planning on that "one more new high" is usually what gets me in trouble. If however we get a rally that takes SPX above 1386 my analysis below will have been proven wrong. So take it for what it's worth here.

Starting with the daily chart I noticed that a Fib projection for the move up from June, which is a 3-wave a-b-c move as labeled on the chart, has the 2nd leg up reaching 262% of the 1st leg up at 1384.47. Normally this move is 100% or 162% but in rare times, such as blow-off tops (and typically found in commodities), this can go a full 262%. SPX stopped within a point of this at Wednesday's high. Link

You can also see price has moved marginally above the top of its parallel up-channel for price action from 2004. This is "throw-over" territory and any drop back down below 1374 would be a sell signal. Moving in a little closer, the 60-min chart shows a parallel up-channel for price action since the September low. Price has been hanging around the lower half of the channel since the sharp drop on October 17th. Link

Wednesday's high tagged the midline of this channel which has been acting as resistance. Also shown on the chart are some internal Fib projections based on the EW count, at 1381.46 and 1382.12, both of which have been hit. Not shown on the chart is a trend line across the recent highs since the end of September and price stopped at the line at Wednesday's high (which is the top of another ascending wedge--and the ascending wedge is the reason for the 3-wave moves higher).

Moving in a little closer still, the 30-min chart looks at the price action since October 23rd which should be the final c-wave of the final 5th wave, all of which are ascending wedges. We've got ascending wedges on every time frame now and this has a very bearish connotation, but only if price starts to drop from here. Link

After spiking above the top of the wedge (twice since the first time was just after the FOMC announcement) SPX closed down and just barely back inside the wedge. It left a bearish shooting star doji on both the 30 and 60-min charts. In addition to the longer term bearish divergences that have not been negated, this shorter term pattern also shows bearish divergences.

So all the pieces are in place for a sell off on Thursday. It's now (or never?) that the bears need to do their thing. It should be their turn at the table now. If this doesn't sell off from here then it'll be back to the drawing board to figure out what's going on. If you don't like picking tops, just keep following this up with your stop below your favorite uptrend line or moving average. That has done remarkably well for the bulls.

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Results posted in the Market Monitor are hypothetical and OIN does not claim that any reader achieved these exact results. Due to the lag time between research, writing, posting, uploading, reading and execution there will be differences between the actual signal given and the fill achieved by the reader. Fills may be better or worse but in most cases they will be different. The writers will make every effort to give advance notice of intended signals and indicate potential price targets. Your individual results may vary depending on your activity level and aggressiveness. This forum is intended as an education service only. Trading involves risk and should not be attempted by anyone not ready to accept this risk. By acting on any signal in this forum you agree and personally accept this risk.

Would you make suggestions about where one could place stops on gold? I am long 4 contracts at 581.40 with out stops. Scarry
Thanks

First of all, big pat on the back, Ron. What a great problem. I can't give anyone individual advice, but my stop on gold is at 575. If I was long right below today's lows (582.30), I would just move it to break-even and not take any chances. In fact, when I have multiple contracts, I usually take partial profits and let the rest ride free. I hope that gives you and everyone some answers. But frankly, I think we hold on to the 590 level going forward, maybe a swing to 585, but looks good right now for a possible lasting push above 600. In any case, great entry and a break-even stop should be fine.

Marc Eckelberry : 10/25/2006 4:41:07 PM

I still think we will get one small pullback before hitting 1398, which at this point is almost a given. But that might wait until next week.

Marc Eckelberry : 10/25/2006 4:18:46 PM

Oil is at 61.55, the boogeyman is back, but no one cares, except NQ, but that index is not manipulated, like ES. At least I would like to think so. In any case, the farce continues, but if we get higher gas at Christmas...

Marc Eckelberry : 10/25/2006 4:16:51 PM

The real political contribution has been the money pushing up futures. This is a heads up if short.

Marc Eckelberry : 10/25/2006 4:16:05 PM

I have never seen anything like it. NDX is lagging and they still keep pushing ES up, especially after-hours on the lower volume. Just amazing. How can they get away with it, you ask? Because hedge funds are completely unregulated and anyone (including the government, or more likely big party donors)could be giving some of them millions to push up markets.

Keene Little : 10/25/2006 4:01:14 PM

DOW new record high! What a shock. With Big Air (BA) down -3.3% and General Malaise (GM) -4.1% today, the Boyz had there work cut out for them to get the DOW in positive territory. Well done guys, you deserve a beer. Tomorrow could be a different story.

Marc Eckelberry : 10/25/2006 3:59:09 PM

If SPX closes above 1383, my next upside target is 1389.63, which would be pretty close to ES 1398. But for now, 1383/1384 holds as R.

Keene Little : 10/25/2006 3:53:20 PM

Only 7 more minutes to hold the DOW in the green.

Jane Fox : 10/25/2006 3:49:15 PM

Tomorrow is a busy day on the economic report scene:

8:30a.m. Initial Jobless Claims: For Sept 30 Wk. Previous: -10K.

8:30a.m. Sept Durable Goods Orders. Previous: -0.5%.

10:00a.m. Sept New Home Sales. Previous: +4.1%.

10:00a.m. Sept Conference Board Help-Wanted Index. Previous: 31.

11:00a.m. Sept Kansas City Fed Mfg Index. Previous: 6.

Marc Eckelberry : 10/25/2006 3:48:19 PM

SPX 1383 is still resistance.

Keene Little : 10/25/2006 3:47:31 PM

Looking at cash, SPX will achieve two equal legs up from Tuesday's low (2nd leg up being the one off the post-FOMC spike down) at 1383.92. I'm looking for the last move up to be an A-B-C move and that would fit. Like I said, I still like the short side here but it could take a try or two in this area to get it.

Keene Little : 10/25/2006 3:44:31 PM

You're still alive if you used a stop 2 ticks to a new high on ES (which would be at 1390). At 3 ticks to a new high for YM (at 12190) the stop was tagged to the penny. I certainly don't like this price action for a short play. Actually I do, but perhaps tomorrow if this one doesn't work out. I too have been wondering if that "fat-fingered" trade to ES 1398 was a heads up for what's coming. Too many times we've seen that happen in the past.

Keene Little : 10/25/2006 3:40:37 PM

Don't argue with price--shorts should be out now. We'll have to see if we get the usual reversal of the post-FOMC move tomorrow.

Marc Eckelberry : 10/25/2006 3:39:57 PM

There it is. Dble top, bearish divergence for ES. But technical means nothing now if someone is pushing some fast money against traders.

Marc Eckelberry : 10/25/2006 3:38:40 PM

Are they shooting for 1398? Could that Sunday night hit be for real?

Keene Little : 10/25/2006 3:38:20 PM

I think the Boyz had their marching instructions with the Fed money given to them this morning--do not let the market sink. I'd say they're doing a good job.

Marc Eckelberry : 10/25/2006 3:36:19 PM

It will eventually get noticed that NQ keeps making lower highs and oil higherhighs. I know they want those new highs headlines before Tuesday, but there has got to be some money coming off the table at some point. SPX up more than 10% this year.

Marc Eckelberry : 10/25/2006 3:36:51 PM

Unless it is a slight new high to ES 1390.25, R2, with a bearsih divergence. But so far, weekly R2 at 1389.50 is holding. There are some very roughneck traders trying to get a swing from R1 at 1387.50 to 1390, but they are really scrambling for upside peanuts here, I think.

Keene Little : 10/25/2006 3:28:00 PM

Are they going to push the DOW up into a green close so that the news can report "DOW makes another record high after Fed holds rates steady"? I wouldn't be surprised by anything at this point. But from a bullish perspective I don't like the choppiness of this bounce after that impulsive decline. A new high though says being short is wrong. Respect your stop if short here.

Swing trade long alert ... for 1/2 position in shares of Bema Gold (BGO) at the offer of $4.28. Stop $4.08, target $4.72

Keene Little : 10/25/2006 2:57:20 PM

This could flop around and push higher again as part of a larger 3-wave bounce. The important level now is today's high. If you're short that's where your stop needs to be. Otherwise you risk getting whipsawed here.

Keene Little : 10/25/2006 2:55:00 PM

A 50% retracement of NQ's drop (1730.25) is where the bounce has stopped. A new low from here should continue lower.

Keene Little : 10/25/2006 2:50:40 PM

A typical retracement of that quick move back down would be 50-62%. That gives us YM 12152-12160 and ES 1385.50-1386.50. Two equal legs up in ES is at 1386.75. This is where the bounce should end. Otherwise a continuation higher to new highs would be very bullish. Short it here with a stop at a new high.

The 1-min chart shows a clean 5-wave move down from the spike high. While these small time frames make it more difficult to use EW analysis, that suggests we topped out and the trend just reversed to down. The proof will be a corrective bounce now followed by new lows.

Marc Eckelberry : 10/25/2006 2:43:31 PM

Gotta go.

Marc Eckelberry : 10/25/2006 2:43:25 PM

Bullish divergences and bulls should try and mount a rally. You should trade this in and out.

Marc Eckelberry : 10/25/2006 2:41:45 PM

Weekly pivots are holding. Watch NQ 1723.75 and ES 1382.75. If that fails, look out below.

Marc Eckelberry : 10/25/2006 2:39:27 PM

With oil back up at 61.50, it's hard to argue about "contained inflation due to lower energy". This is why we are selling off. Oil was not supposed to rally today.

Keene Little : 10/25/2006 2:38:50 PM

New daily lows across the board.

Jeff Bailey : 10/25/2006 2:34:02 PM

SPX NH/NL 61:1 are equal Monday's 61:1.

Jane Fox : 10/25/2006 2:32:05 PM

DAteline WSJ - The Federal Reserve held short-term interest rates steady for its third consecutive meeting, and continued to warn additional rate increases may be needed to stem inflation.

Still, investors concluded the Fed will remain on hold for the foreseeable future as it balances concern over the uncomfortably high level of underlying inflation against a slowing economy.

As widely expected, the Fed left its target for the Federal funds rate, charged on overnight loans between banks, at 5.25%, where it has stood since late June. It had raised it to that level from a historic low of 1% in mid-2004.

In a statement released after its meeting, the Fed said growth has slowed in part because of a "cooling" housing market. "Going forward, the economy seems likely to expand at a moderate pace," it said, the most notable change from the statement released after last month's meeting.
Core inflation, which excludes food and energy, remains "elevated" but inflation pressures are likely to moderate thanks to lower energy prices, "contained" inflation expectations, and the impact of previous rate increases, the Fed said. "Some inflation risks remain," the Fed said, but whether rates would rise again depends on the outlook and "incoming information."

Keene Little : 10/25/2006 2:30:37 PM

It looks like the 3rd cha is in progress with this move back down.

Keene Little : 10/25/2006 2:29:29 PM

Interesting, VIX just closed Monday's gap up at 10.62 on the spike down as prices spiked up.

Marc Eckelberry : 10/25/2006 2:29:19 PM

I have been thinking SPX 1383 for some time (and writing about it) and it was pretty much it, give a few pennies.

Jeff Bailey : 10/25/2006 2:28:57 PM

SPY $137.80 -0.05% ... first sign of any weakness would be something back below WEEKLY Pivot.

Marc Eckelberry : 10/25/2006 2:28:33 PM

YG holds 590 support as the dollar drops while yields fall. Oil rallies some more. Short ES at 1389.75 and long gold.

If ES/SPX can't hold these gains then it's going to look like an over-throw above the ascending wedges. This would be a typical news-driven event. Today's close will be important.

Marc Eckelberry : 10/25/2006 2:23:28 PM

Once again, NQ lags as SPX makes new highs.

Jim Brown : 10/25/2006 2:23:27 PM

Reader Challenge Repeat - This week's reader challenge is going to be a little different. It is nice to play pin the tail on the indexes as we have the last couple weeks but it does not help us make any money. This week we need to make some money to support our trading habit.

I am going to ask everyone to submit a play for next week. The person whose play makes the most money will win a copy of an Option Investor Seminar on video. This is the seminar package we sold for $1,995 several years ago. There are videos of numerous Option Investor traders including myself, Jeff Bailey, Austin Passamonte and about a dozen others. There is a huge workbook with all the power point slides from three days of presentations. While the charts will be old the option training is still 100% the same.

Here is how this will work:

I want you to submit a potential option play to me by email at jim@optioninvestor.com before the close on Thursday. I will organize them and then list them in the monitor on Friday. The starting price will be Friday's closing price. Monitor readers can follow along with any plays they choose. The play that gains the most on a percentage basis by next Friday's close (11/3) will be the winner.

You can't say "short the QQQQ" or "buy Google". You have to give a specific option like a "QQQQ $45 Call option QQQ-LS." You need also to give a two or three sentence reason why you are recommending the play. Nothing fancy but before readers blindly put on money on it they will want to know why. Equity options plays only, no futures.

I will list the plays on Friday 10/27 but without names. I don't want anybody to not play because they are afraid of being embarrassed if the play does not work. Been there, done that! I will disclose the names on the top 3 plays at the end of next week. I will also give number 2 and 3 a prize but I have not decided yet what it will be.

Put on those thinking caps and fire up your chart programs. Let's make some money next week!

Keene Little : 10/25/2006 2:21:36 PM

We've got a very bullish response in equities and bonds. Now the trick will be to hold these gains instead of seeing just a reactionary spike up.

Marc Eckelberry : 10/25/2006 2:20:34 PM

SPX has pretty much reached my high target of 1383.

Jeff Bailey : 10/25/2006 2:19:58 PM

SPY alert $138.34 +0.32% ... gets a trade at WEEKLY R2!

Jeff Bailey : 10/25/2006 2:19:08 PM

If there is one sign that oil (the commodity) might be finding a near-term bottom, it is the strength from equities in the sector.

This move down just before the FOMC announcement could be the first cha. A reactionary spike up would the 2nd cha, and then the 3rd cha would be back down again, and down into the close. That would be typical although I hesitate to use the word typical for this market.

I don't think hedge funds have missed much from the long side. Not much at all.

Keene Little : 10/25/2006 1:41:38 PM

Moving in a little tighter still on the SPX charts I posted earlier (10:52 PM and 11:16 AM), I see the possibility that we'll get another minor high this afternoon that could finish up the final 5th wave (as another ascending wedge). The bearish divergences support the idea. SPX 1381 still looks like a good possibility for a high. If it goes much higher than that then the next upside Fibs are 1384-1386. Link

Jane Fox : 10/25/2006 1:38:14 PM

Did'cha see ES did not have any followthrough on its new daily lows. Godda luv' that ol' VIX

Keene Little : 10/25/2006 1:24:33 PM

Just a random thought about what might happen after the FOMC announcement--if the Fed knows they're going to lay a stink bomb on the market with a hawkish statement they know the market will react negatively to it. I'd be real cautious about chasing that move. First of all we know there tends to be a cha-cha-cha around FOMC and the initial direction is not always the final direction.

Secondly, the Fed might have stuffed a few 100 million dollars into the hands of their primary dealers with the instructions to not the let the market sell off. That's obviously pure speculation but not out of the realm of possibilities either.

Marc Eckelberry : 10/25/2006 1:20:28 PM

Another reason to be bullish on oil: there is no real energy conservation policy and the reasons are pretty well written up in this Street.com article. Link

Keene Little : 10/25/2006 1:12:34 PM

The bounce in ES has two equal legs up at 1384. It's also testing its broken uptrend line from Monday. Not a bad spot to try a short if you'd like to try a trade before FOMC.

Keene Little : 10/25/2006 1:05:47 PM

A little more than an hour to go before we get a live body on the phone and we can stop listening to elevator music.

ES is hitting its uptrend line from Monday, at 1383.75. The uptrend line for SPX is a little lower at 1377.40.

Marc Eckelberry : 10/25/2006 12:23:33 PM

The lows should be in for the QM December contract, In fact, 60 should hold on any pullback. Another case of NEVER listening to the media. Hearing them, you would have thought oil was plentiful and we were headed for 55. The game has always been long oil for November. It's been hard pounding this through with all the sentiment going the other way, but it's here folks.

Jane Fox : 10/25/2006 12:15:55 PM

Some days the only internal you need is the AD volume. Today it is talking to you loud and clear. Link

Jane Fox : 10/25/2006 12:13:14 PM

NEW YORK (MarketWatch) -- Crude-oil futures rallied Wednesday after data showed the biggest weekly decline in petroleum inventories since the week that Hurricane Katrina made landfall, flying in the face of expected increases for oil and gasoline.

"This is a sharply bullish report, and will sustain yesterday's upward momentum in prices," said Rakesh Shankar, analyst at Moodys' Economy.com.

Crude for December delivery was last up $1.43, or 2.4%, at $60.78 a barrel on the New York Mercantile Exchange after trading as high as $60.90, its loftiest level this week.

The Department of Energy said crude inventories fell by 3.3 million barrels in the week ended Oct. 20. Analysts at Wachovia Corp. were expecting a climb of 2.2 million barrels and Fimat USA was looking for a rise of 1.1 million barrels.

Distillate supplies, which include heating oil and jet fuel, fell by 1.4 million barrels, more than the 500,000-barrel decline Wachovia was expecting and the 600,000-barrel decline pegged by Fimat.

Motor-gasoline inventories fell by 2.8 million barrels, against forecasts for a rise of 1.5 million barrels forecast by Wachovia and a climb of 200,000 barrels predicted by Fimat.

Separate data from the American Petroleum Institute showed crude supplies down by 3.7 million barrels, gasoline supplies down by 2.3 million barrels and distillates down by 588,000 barrels.

The biggest surprise was the sharp drop in crude, which was due to a decline in imports of almost 1 million barrels, said Shankar.

"Refinery utilization has also moderated, limiting supply of products," he said.

Marc Eckelberry : 10/25/2006 12:12:38 PM

Many traders keep piling on long on dips not believing oil could do a rally like this without pulling back. Well, it can. Up 3%.

It's looking like we're going to go flat for the next 2 hours. It's a good time to catch up on some of your other tasks such as reading and researching.

Jane Fox : 10/25/2006 11:51:20 AM

WASHINGTON (MarketWatch) -- With almost no chance of a rate hike at their meeting Wednesday, Fed watchers are turning their attention to parse the subtle changes in the two hundred words that the central bank will release at the end of their meeting.

"All of the recent policy statements have had subtle nuances in them and we would expect more nuances in this statement," said Brian Fabbri, economist at BNP Paribas.

The Fed will release its policy statement around 2:15 p.m. Eastern time. Economists universally expect the FOMC to remain on the sidelines for the third straight meeting, holding the Fed funds target rate steady at 5.25%.

Using their policy statement, the Fed has maintained a "hawkish" pause at their August and September meetings. The Fed has maintained an informal bias towards another rate hike. This has been accomplished through language in the statements saying that "inflation risks remain" and additional rate hikes "may" be needed, depending on the economic data.

Jane Fox : 10/25/2006 11:47:22 AM

These are suggesting highers later in the day but with FED decision laying in wait anything can happen. Link

Keene Little : 10/25/2006 11:25:24 AM

For those who would like to play around with another free charting program, I just got an email today (more junk) from eSignal promoting their "free" charts, news, etc. It's at quote.com and I've been playing around with it this morning to test it out. You can select the charts tab and try it out. Don't select real time charts unless you want to sign up for their LiveCharts service (or higher levels which is what QCharts is) as it keeps timing out and asks if you'd like to join.

Anyway, I've got a chart of SPX pulled up and you can do some basic things like trend lines and several studies and you can select how often you want it to automatically refresh. If you watch the market sporadically and want to keep an eye on how the market is progressing during the day it might serve your purpose. Personally I think a package like QuoteTracker is better but this is just another option.

Marc Eckelberry : 10/25/2006 11:16:50 AM

Pre-lunch push coming and that should top us out.

Keene Little : 10/25/2006 11:16:35 AM

Zooming in a little closer on the SPX chart I posted below (10:52 PM) this 30-min chart shows the short term Fib projections just under 1381, along with the trend line resistance. The short term pattern looks like it needs another minor new high but I don't like to rely on getting that move. In the meantime, support is the uptrend line from Monday's low, currently at 1376.40 (cash). Until that breaks the bulls are still in the driver's seat. A rollover from this morning's high would leave a clear bearish divergence at the high. Link

Marc Eckelberry : 10/25/2006 11:16:22 AM

Unless you are prepared to use wide stops, that is.

Marc Eckelberry : 10/25/2006 11:05:06 AM

Once again, ES proves to me that it is the WORST trading vehicle out there, bar none. NQ was a much better swing trade and reverse, behaving very well technically. ES is just a piece of manipulated overtraded junk and I highly recommend you stay away from it.

Jeff Bailey : 10/25/2006 11:03:56 AM

Swing trade put stop alert ... on the XOM-WN at the bid of $1.35

XOM $70.35 +0.65%

Keene Little : 10/25/2006 10:59:32 AM

SPX is threatening to break its uptrend line from yesterday afternoon which would signify that at least that leg up is finished. I see the possibility for at least a retest of this morning's high though. Not so sure about that on the DOW though. That one is looking weak.

Marc Eckelberry : 10/25/2006 10:46:34 AM

Many hedge funds missed out on rotating back into oil at lows and they are desperately trying to eke out anything they can out of ES. The game in November is to be in oil and eventually they willcatch on and drive it up to 70 by year end.

Marc Eckelberry : 10/25/2006 10:44:26 AM

They tried to drive gold down, but higher oil and lower dollar made for a good long at lows. The potential inverse H&S is getting some build on the right shoulder. If 584 holds, we should be getting above 590 soon. Depends on QM holding 60.

Keene Little : 10/25/2006 10:41:10 AM

The sudden sell off in the DOW doesn't look good. But so far it's all within the trading range since Monday. A break below 12080 (cash) would say something more bearish is going on.

Keene Little : 10/25/2006 10:39:31 AM

The Trannies are on a tear this morning. Two equal legs up from its low on October 18th is at 4832. It too could be in its final fling to a new high and I'd watch to see if that level holds the Trannies back (currently printing 4814, +82).

Marc Eckelberry : 10/25/2006 10:38:42 AM

When you see the action in QM, you wonder why we waste our time nickel and diming ES.

Marc Eckelberry : 10/25/2006 10:36:00 AM

You should be out of that NQ long last night from 1724.

Marc Eckelberry : 10/25/2006 10:35:19 AM

QM solid bid above 60. My SPX high target is 1383, but I doubt we will get there if oil keeps this bid. Watch NQ 1737.50.

Keene Little : 10/25/2006 10:31:52 AM

SPX has hit the grouping of Fib projections that I have right around 1380.40. The Gann number of 1381 is just above. If those numbers are to have any meaning, we should be topping here. Otherwise it could get very bullish again.

Keene Little : 10/25/2006 10:21:15 AM

The techs and small caps are getting most of the attention this morning. They continue to trade in the relatively narrow range for the past week and a half. SPX is working its way a little higher and now the DOW is poking its head into the green. We're either going to see a very bullish day or else this is a topping pattern prior to FOMC. Too hard to tell which. Be careful out there.

WASHINGTON (MarketWatch) - Sales of U.S. existing homes fell for the sixth month in a row in September while median sales prices fell for the second straight month, the National Association of Realtors said Wednesday.

Inventories of unsold homes fell for the second straight month, a sign that the market is correcting, said Laurence Yun, a senior economist for the realtors group.

Sales fell 1.9% to a seasonally adjusted annual rate of 6.18 million in September, the lowest since January 2005. The decrease was slightly larger than the consensus expectation of a drop to 6.23 million, according to a survey conducted by MarketWatch.

"This is likely the trough in sales," said David Lereah, chief economist for the realtors group.
Sales are down 14.2% in the past year.

The median sales price fell 2.2% year-on-year to $220,000. Median prices have been down on a year-over-year basis for two months in a row for the first time in 16 years.

Yun said median prices would not begin to rise until the market is rebalanced between buyers and sellers, likely in the early spring, based on the 2.4% fall in inventories to 3.75 million, a 7.3-month supply at the September sales pace.

Jane Fox : 10/25/2006 10:03:48 AM

SAN FRANCISCO (MarketWatch) -- Shares of large Internet firms were gaining ground early Wednesday, with Amazon.com Inc. (AMZN) continuing to rise after soaring 14% overnight on positive earnings news and Yahoo Inc. (YHOO)) up on the release of a new array of Internet search features, including a new toolbar for searching the Internet without having to steer Web browsers to a new page. The Dow Jones Internet Index and the technology-heavy Nasdaq Composite Index ($COMPQ) were also on the upside.

I see VIX and AD volume are in sync so that may be enough to overrule the TRIN. And sure enough they are because the TRIN is now falling.

Jane Fox : 10/25/2006 9:52:07 AM

TRIN to new daily highs at 1.44 - don't expect a lot more upside here.

Jane Fox : 10/25/2006 9:49:23 AM

... AD volume to new daily highs. The only internal that would cause you concern is the TRIN at 1.33 but heh this is Party like its 1999 isn't it so - heck me worry!!!

Jane Fox : 10/25/2006 9:47:27 AM

VIX to new daily lows so it is certainly not time to short.

Jane Fox : 10/25/2006 9:45:55 AM

TICKS +800.

Keene Little : 10/25/2006 9:45:18 AM

But YM is still hanging above potential support at 12148 so be careful about a buy program hitting.

Keene Little : 10/25/2006 9:43:23 AM

GM is down over 3% and Boeing is down 3% so obviously the DOW is feeling the impact from those two.

Keene Little : 10/25/2006 9:40:55 AM

Those who loved GM this week decided today to hand back some of the stock, down almost 3% this morning. I guess a smaller loss is still not a good reason to own a stock. Do you think?

Keene Little : 10/25/2006 9:38:30 AM

It looks like techs and small caps are getting the buyers this morning. ES got a little bump after the open but poor YM is just sitting there all dejected. Where's the love?

Jane Fox : 10/25/2006 9:36:04 AM

TRIN is 1.28 and climbing unforunately though VIX is falling. These two are not in sync.

Jane Fox : 10/25/2006 9:31:46 AM

AD line is a very neutral -17 and AD volume is as close to 0 as it can get.

Jane Fox : 10/25/2006 9:27:16 AM

YM is now breaking to a new overnight low.

Jane Fox : 10/25/2006 9:21:57 AM

Dateline WSJ - Investors looking for a road map to the Federal Reserve's next moves on interest rates often look to 1995.

At the time, the Fed had raised interest rates steadily after a long period of unusually low rates. With the U.S. economy slowing, it paused for five months and then started cutting rates.

Many investors have been looking for that cycle to repeat itself and expect the Fed, which last raised interest rates in June, to begin cutting rates at some point in the next few months.

This year differs from 1995 in ways that suggest the Fed could stay on hold longer. One is that interest rates are lower now than back then. Another is that Fed officials' tolerance for inflation is quite different today.

"We have to watch carefully to make sure that [inflation] doesn't rise or even remain where it is," Fed Chairman Ben Bernanke said three weeks ago. In other words, it isn't enough that core inflation, which excludes food and energy, stops rising; the Fed wants to ensure it will be lower a year or so from now.

Mr. Bernanke's predecessor, Alan Greenspan, never laid down so explicit a marker. When Mr. Greenspan became Fed chairman in 1987, core inflation, at about 4%, was above most definitions of "price stability," (the Fed's statutory goal) including his.

Dateline WSJ -
General Motors Corp. reported a narrower third-quarter net loss, on an improvement in the company's North America auto operations and benefits associated with taxes.

The auto maker said Wednesday it posted a loss of $115 million, or 20 cents a share, compared with a loss of $1.66 billion, or $2.94 a share, in the year-earlier period.

The results included charges totaling $644 million, or $1.13 a share, for special items including goodwill impairment at GMAC and an increase to the charge associated with Delphi's reorganization. Excluding these items, GM reported adjusted net income of $529 million, or 93 cents a share.

Revenue rose 3.5% to $48.82 billion from $47.18 billion.

Keene Little : 10/25/2006 9:17:55 AM

The trend line along the lows for YM since Monday afternoon is at 12148 so if the choppy rise is going to continue watch for support there.

Keene Little : 10/25/2006 9:16:15 AM

YM has given up quite a bit more than ES as we head into the open but after yesterday's relatively stronger performance it may be just getting back in synch with ES.

Keene Little : 10/25/2006 9:15:00 AM

ES futures are back to the middle of their overnight range so we have no sense of direction from that. The way this market has been held up it hasn't really mattered what futures have done overnight anyway. It's likely to be a boring choppy wait until FOMC. What I want to see is if we continue to chop higher since that could set up a drop. Otherwise any pullback today could lead to another run higher.

If this market manages to run higher than about 1385 it could mean a lot higher so it will either fail close to current levels or else not for another couple of weeks (there's a potential Fib turn date around November 7th) and from a higher level. Today/tomorrow should answer the question.

Jane Fox : 10/25/2006 9:12:25 AM

Ok I don't have to say these markets are getting WAY overdone and need to take a breather. This kind of bullishness is not normal and it should make you all wonder what the heck is going on.

There are very few absolutes in the market but one is that markets will not climb or fall without a pullback. There is a 100% chance of a pullback we just don't know when it will happen or how much pain it will inflict on the bulls and the longer we go without a pullback the more pain it will inflict.

A return to the May highs would be a very narrow 23.80% retracement and would certainly keep this market bullish while giving it the needed pullback. Unfortunately that needed pullback has not happened since the Sept lows. Link

Jane Fox : 10/25/2006 8:50:29 AM

Equity markets mostly traded around where they opened overnight. YM did manage to break its PDH and ES tagged its PDH. Other than those two items nothing much happened and I don't think much will happen intraday either because of this is a FED day and they are always big yawners. Link

Jim Brown : 10/25/2006 3:51:19 AM

Reader Challenge - This week's reader challenge is going to be a little different. It is nice to play pin the tail on the indexes as we have the last couple weeks but it does not help us make any money. This week we need to make some money to support our trading habit.

I am going to ask everyone to submit a play for next week. The person whose play makes the most money will win a copy of an Option Investor Seminar on video. This is the seminar package we sold for $1,995 several years ago. There are videos of numerous Option Investor traders including myself, Jeff Bailey, Austin Passamonte and about a dozen others. There is a huge workbook with all the power point slides from three days of presentations. While the charts will be old the option training is still 100% the same.

Here is how this will work:

I want you to submit a potential option play to me by email at jim@optioninvestor.com before the close on Thursday. I will organize them and then list them in the monitor on Friday. The starting price will be Friday's closing price. Monitor readers can follow along with any plays they choose. The play that gains the most on a percentage basis by next Friday's close (11/3) will be the winner.

You can't say "short the QQQQ" or "buy Google". You have to give a specific option like a "QQQQ $45 Call option QQQ-LS." You need also to give a two or three sentence reason why you are recommending the play. Nothing fancy but before readers blindly put on money on it they will want to know why. Equity options plays only, no futures.

I will list the plays on Friday 10/27 but without names. I don't want anybody to not play because they are afraid of being embarrassed if the play does not work. Been there, done that! I will disclose the names on the top 3 plays at the end of next week. I will also give number 2 and 3 a prize but I have not decided yet what it will be.

Put on those thinking caps and fire up your chart programs. Let's make some money next week!